2016 (5) TMI 237 - AT - Income Tax

Addition u/s 68 - Held that - In this case in some of the bank accounts there are entries of transfer deposits in the bank account of these persons before the issue of cheque to the assessee. However we could not find any entry of unsecured loan in the statement of affairs of these parties except gift received from the mother of 50, 000/- in some accounts. Therefore there is no source available with the assessee of the sums shown to have been received by the lenders through banking transfer entries in their account. Further the finding of the CIT (A) in a tabular form also depict the modus operandi of the amount deposited in the books of the assessee as unsecured loan from these parties. We are of the view that there is no difference if the amount is deposited by the assessee through cheque or through banking channel as these are the different modes of the transaction. They neither prove nor disprove the creditworthiness of the lender or genuineness of the transactions. We are also of the view that no decision cited by the assessee or ld AR are applicable on the facts of the case of the manner in which the return of income is filed statement of affairs are prepared and amounts are introduced in the books of assessee which does not commensurate with the income shown by the lenders. In view of our above finding we also hold on the same reasoning as there is no change in facts and evidences produced before us that the loans of 51, 81, 500/- has rightly been added by the AO u/s 68 of the Act and confirmed by the ld. CIT(A) - Decided against assessee Disallowance u/s 40a (ia) - non-deduction of tax at source to the persons who are agent of foreign shipping lines - Held that - The provision of section 172 applies to them and tax is not required to be deducted u/s 194 C of the act. Secondly if the expenses are already paid and not payable in that case the provision of section 40a (ia) is required to be applied and no disallowance is called for to the extent sums are paid in view of the decision of the Hon ble Allahabad High Court in the case of CIT Vs. Vector Shipping Pvt. Ltd 2013 (7) TMI 622 - ALLAHABAD HIGH COURT . In view of this above two directions we set aside the issue to the file of the AO for verification if the payments are made to the agents of foreign shipping agents then no disallowance is called for. Further the disallowance is also required to be reduced to the extent of amount paid by the assessee in view of decision of the Hon ble Allahabad High Court.

Summary

Issues Involved:
1. Assessment of Income
2. Addition under Section 68 of the Income Tax Act, 1961
3. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961

Issue-wise Detailed Analysis:

1. Assessment of Income:
The primary issue raised by the assessee was the assessment of their income at Rs. 84,66,760 as against the returned income of Rs. 64,460. The assessee contended that the observations and findings made by the Commissioner of Income Tax (Appeals) [CIT(A)] were incorrect and not tenable in law, arguing that the facts of the case were not considered in the right perspective.

2. Addition under Section 68 of the Income Tax Act, 1961:
The assessee contested the addition of Rs. 51,81,500 under Section 68, which pertains to unexplained cash credits. The CIT(A) upheld that the loans received by the appellant were not genuine, and the creditworthiness of the lenders was not proven. The assessee argued that the creditworthiness was established through documents placed on record, and the findings of the CIT(A) were factually incorrect.

The Tribunal examined the details of the unsecured loans taken from seven parties. These parties had deposited cash into their bank accounts on a single day and issued cheques to the assessee the next day. The Tribunal noted that the lenders had meager incomes and did not have the capacity to deposit such amounts. The Tribunal also observed that all the lenders had similar patterns in their financial statements, indicating a lack of genuine transactions. The Tribunal concluded that the assessee failed to prove the creditworthiness and genuineness of the transactions, thereby confirming the addition under Section 68.

3. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:
The assessee also challenged the addition of Rs. 31,90,799 under Section 40(a)(ia) for non-deduction of TDS on payments made to agents of foreign shipping lines. The CIT(A) held that none of the persons to whom payments were made were agents of foreign shipping lines, despite evidence to the contrary. The assessee argued that the CIT(A) ignored the CBDT Circular No. 715 and judicial pronouncements, and that the benefit of the 2nd proviso to Section 40(a)(ia) should have been allowed.

The Tribunal considered the rival contentions and the evidence submitted. It was noted that if payments were made to agents of foreign shipping lines, then no TDS was required under Section 194C. The Tribunal also referenced the decision of the Allahabad High Court in the case of Vector Shipping Pvt. Ltd., which held that no disallowance is called for if the expenses are already paid and not payable. Consequently, the Tribunal set aside the issue to the file of the Assessing Officer (AO) for verification and directed that no disallowance should be made if the payments were to agents of foreign shipping lines. The Tribunal also directed that the disallowance be reduced to the extent of the amount paid by the assessee.

Conclusion:
The appeal was partly allowed. The Tribunal confirmed the addition under Section 68 but allowed the appeal regarding the disallowance under Section 40(a)(ia) with directions for verification by the AO. The judgment emphasized the importance of proving the creditworthiness and genuineness of transactions and the applicability of TDS provisions based on the nature of payments.